July 11, 2002 | Ten years after the phrase was famously uttered by Queen Elizabeth II (following the fire at Windsor Castle and the separation of Prince Charles and Lady Diana), it is probably not too early to declare 2002 the annus horribilis of another grand institution — the pharmaceutical industry. Take Bristol-Myers Squibb — anybody? Watching the patents on Taxol and other successful drugs expire, gambling $2 billion on ImClone Systems Inc.'s highly-touted cancer drug Erbitux, which then failed to win FDA approval, the troubled pharma is now holding discussions with GlaxoSmithKline about a possible merger, presumably in the hope that conserving costs would help the two drug giants restock their genomic drug pipeline.

Much of the trouble ensnaring the drug industry is blamed on the exorbitant cost of drug discovery. We hear ad nauseam — indeed, Bio·IT World has joined the chorus — the mantra that rapid advances in gene, protein, and drug identification will lead to swift, sharp reductions in both the time and cost of drug discovery. That improvements in speed are being realized is not in doubt, as the record FDA approval of the rationally designed cancer drug Gleevec illustrates. Tangible proof that the bio-IT revolution will economize drug discovery is emerging, but there is still a long way to go.

For decades, the pharmaceutical industry has benefited from major advances in technology, from automation to combinatorial chemistry to the genomics revolution. And yet the cost of drug discovery rises inexorably. In the late

That improvements in speed are being realized is not in doubt, as the record FDA approval of the rationally designed cancer drug Gleevec illustrates. Tangible proof that the bio-IT revolution will economize drug discovery is emerging, but there is still a long way to go.

1970s, according to a study by the Tufts Center for the Study of Drug Development, the average cost of developing a drug from target compound through animal models and clinical trials to market was a modest $54 million. Ten years ago, that figure jumped to $231 million. Estimates from the late 1990s put the cost at around $500 million.

Last November, the Tufts group released its third drug-cost report, garnering widespread publicity and no small amount of controversy. Using data on a random selection of homegrown drugs from 10 pharmaceutical companies, the report calculated the current cost of drug discovery at a staggering $802 million — a 2.5-fold increase (in inflation adjusted terms) over the past decade. (Had costs risen merely at the pace of inflation, the current figure would be just $318 million.) Much of this increase is attributed to the rising costs of clinical trials — recruiting thousands of patients, better safety screening — which increased at an annual rate of 12 percent, five times more than for pre-clinical R&D — and greater emphasis on treating chronic diseases.

The new Tufts study, which was led by the center's director for economic analysis, Joseph DiMasi and is not yet published in a peer-review journal, includes estimates of the cost of drug candidates that fail during various stages of the discovery process. Only five out of every 5,000 potential new drugs tested on animals reach clinical trials, and only one out of 5,000 ultimately wins approval by the FDA.

Talking Numbers
The Tufts center receives two-thirds of its sponsorship from the drug industry, inevitably casting a slight pall over the report's conclusions. But more controversial is the practice of factoring into the final figure an estimate of the return on capital used in the drug discovery process that would otherwise have been invested (with an 11 percent rate of return). Almost half of the Tufts $802-million figure — $399 million — is comprised of this "cost of capital," leaving a figure of $403 million for direct out-of-pocket expenses, most of which is expended in clinical trials.

But despite this soaring investment, the FDA actually approved fewer drugs last year — just 52 — than it did 10 years ago. "People got way too excited about the genome being unlocked," says Fred Hassan, chairman and CEO of Pharmacia Corp. "Five to 10 years from now, it might help our product flow. In the meantime, the industry is going to go through rough times." Understanding the root cause of disease does not necessarily translate into developing a successful drug. The fact that there are still no cures for classic genetic diseases such as muscular dystrophy, cystic fibrosis, and Huntington's disease, the genes for which were discovered 10 to 15 years ago, does not bode well for more complex diseases, where the respective roles of genes and environment are harder to dissect. As Jeffrey Leiden, president and chief scientific officer of Abbott Pharmaceuticals, says ruefully, "The low-hanging fruit have been picked."

At a time when R&D should be the top priority, pharmaceutical companies still countenance spending more on marketing. This is partly due to increased competition in niche markets, as drug companies increasingly unveil drugs that are really derivatives of proven commodities. "Is it still justified," asks Jürgen Drews, former president of global research at Hoffmann-La Roche, in his book In Quest of Tomorrow's Medicines, "... to spend more money on sales representatives, advertising, and publicity than on research and development?"

The key to turning this potentially disastrous situation around is the application of bio-IT to rapidly identify new targets, and expedite the approval process. Whether you favor $403 million or $802 million, the cost of drug discovery is far too high. It is therefore imperative that the drug industry embraces bio-IT, or the next decade will turn out to be rather horribilis.